BUSINESS STRATEGY

THE FUNDAMENTAL ELEMENTS OF THE DEFINITION OF A BUSINESS STRATEGY The Mission of the Business Definition of business scope: products, markets, and geographies Identification of unique competencies

Internal Scrutiny at the Business Level (Past performance and future projections) Identification of internal critical factors to achieve competitive advantage Overall assessment of competitive position Definition of Strengths and Weaknesses

Environmental Scan at the Business Level (Past performance and future projections) Identification of external factors contributing to industry attractiveness Overall assessment of industry attractiveness Identification of Opportunities and Threats

Formulation of the Business Strategy A set of multiyear broad action programs

Strategic Programming Definition and evaluation of specific action programs (covering 6- to 18- months)

Budgeting Strategic funds programming and operational budgets

THE DELTA MODEL AN INTEGRATIVE STRATEGIC FRAMEWORK

The Triangle SLI

TCS

BP

Customer Segmentation and Customer Value Proposition Mission of the Business Business Scope Core Competencies Competitive Positioning Activities that drive profitability Business The Strategic Agenda I CT Adaptive Processes Strategic Agenda Aggregate and Granular Metrics Experimentation and Feedback
The changes introduced by the Delta Model Add the Triangle to decide on the strategic positioning Add the Adaptive Processes to expand the implementation tasks

Industry Structure External factors determining industry attractiveness

OE

The primary outputs of the Business Strategy process are: Managerial Consensus Customer Segmentation and Customer Value Proposition The Mission of the Business (supported by Industry Structure and Competitive Positioning Analyses) The Strategic Agenda of the Business The Strategic Agenda of the Adaptive Processes (Operational Effectiveness, Customer Targeting, and Innovation) The Budget and Metrics

MANAGERIAL CONSENSUS

Saturn definition: 70% Agreement/ 100% Buy-In

CUSTOMER SEGMENTATION AND CUSTOMER VALUE PROPOSITION

CUSTOMER SEGMENTATION
Customer Tier Description

BUSINESS DIMENSION OF THE CUSTOMER TIER

Customer Dimension
Products

Customer Tier: ________________________

Services

Customers

Channels

End Users

Complementors

Unique Competencies

VALUE PROPOSITION
Customer Tier: ___
Set of experiences we will provide to the tier

Value Proposition Elements

Set of value delivery systems needed to provide the experiences

Value appropriation

Value gained by the customer Value gained by us Value shared by both

THE MISSION OF THE BUSINESS

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THE MISSION OF THE BUSINESS

A statement of the current and future expected product scope, market scope, and geographical scope, as well as the unique competencies of the business must develop to achieve its desired competitive position.

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THE MISSION OF THE BUSINESS

Now Product/Services Scope

Future

Customer Scope

End User/Consumer Scope

Channel Scope

Complementor Scope

Geographical Scope

Unique Competencies

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Existing Product-Services Scope

--

++

New Product-Services Scope

--

++

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Challenges from Changes in Product-Services Scope

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Existing Customer Scope

--

++

New Customer Scope

--

++

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Challenges from Changes in Customer Scope

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Existing End User/Consumer Scope

--

++

New End User/Consumer Scope

--

++

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Challenges from Changes in End User/Consumer Scope

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Existing Channel Scope

--

++

New Channel Scope

--

++

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Challenges from Changes in Channel Scope

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Existing Complementor Scope

--

++

New Complementor Scope

--

++

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Challenges from Changes in Complementor Scope

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Existing Geographical Scope

--

++

New Geographical Scope

--

++

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Challenges from Changes in Geographical Scope

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Existing Unique Competencies

--

++

New Unique Competencies

--

++

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Challenges from Changes in Unique Competencies

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Mission Statement

Product Product/Services Scope

Now: Future:

Customer Scope
Now: Future:

End User/Consumer Scope

Now: Future:

Channel Scope
Now: Future:

Complementor Scope
Now: Future:

Geographical Scope
Now: Future:

Unique Competencies
Now: Future:

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ENVIRONMENTAL SCAN

Different approaches Summary of Porters Five Foroces (e.g. Fig. 5-5, p. 79) Detailed Five Forces Analysis (e.g. Figures 5-7 through 5-15) External Forces Analysis (e.g. Figures 517 through 5-24). You can apply an environmental scan to different constituencies Your industry (Best Product) Your customers and suppliers industry (Total Customer Solutions) Your complementors industry (System Lock-In) Conclude the environmental scan with a summary of Opportunities and Threats.

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INTERNAL SCRUTINY

Different approaches Summary of Value Chain (e.g. Figure 6-3, p. 122). Detailed Value Chain Analysis (e.g. Figures 6-8 through 6-19). You can apply an internal scrutiny to different constituencies Your business (Best Product) Your customer and suppliers businesses (Total Customer Solutions) - Your complementor business (System LockIn) Conclude the internal scrutiny with a summary of Strengths and Weaknesses

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STRATEGIC AGENDA OF THE BUSINESS

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THE STRATEGIC AGENDA IS EXPRESSED BY MEANS OF THE STRATEGIC THRUSTS

Strategic thrusts are the primary actionoriented issues the firm has to address in order to achieve its desired strategic positioning. The statement of strategic thrusts should include: Specific planning challenges - the assignment of responsibilities at the corporate, business, and functional levels for the formulation and implementation of strategic programs addressing each strategic thrust. Relevant measurements of performance Identification of appropriate indicators to monitor the operational and strategic results associated with each thrust.

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STRATEGIC AGENDA
Organizational Units Business Processes

Strategic Thrusts

Performance Measurements

1 2 1

- Key role in formulation and implementation - Important role of support and concurrence - Identifies the 'Champion', who takes leadership for the strategic thrust execution

B - Business Model OE - Operational effectiveness CT - Customer Targeting I Innovation

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ASSIGNMENT OF PRIORITIES TO STRATEGIC THRUSTS Priorities Strategic Thrusts A B C Weight

A - Absolute first priority (postponement will hurt competitive position significantly). B - Highly desirable (postponement will affect competitive position adversely). C - Desirable (if funds were available, competitive position could be enhanced).

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DEFINITION OF STRATEGIC THRUSTS Name Description

Responsible Manager Other Key Participants

Other Important Contributors

Key Indicators for Management Control and Targets

First Major Milestone Description First Major Milestone Date Resources Required

Statement of Benefits

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TESTS TO EVALUATE THE QUALITY OF THE STRATEGIC AGENDA

1.

Comprehensiveness

2.

Stretch

3.

Monitoring and Control- Ease of Implementation

4.

Motivation- Quality of Working Environment

5.

Vulnerability

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THE BUDGET

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BUDGETING AND STRATEGIC FUNDS

Strategic funds are expense items required for the implementation of strategic action programs whose benefits are expected to be accrued in the long term, beyond the current budget period.

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There are 3 major components of strategic funds: 1. Investment in tangible assets, such as new production capacity, new machinery and tools, new vehicles for distribution, new office space, new warehouse space, and new acquisitions. Increases (or decreases) in working capital generated from strategic commitments, such as the impact of increases in inventories and receivables resulting from an increase in sales; the need to accumulate larger inventories to provide better services; increasing receivables resulting from a change in the policy of loans to customers, and so on. Development expenses that are over and above the needs of existing business, such as advertising to introduce a new product or to reposition an existing one; R&D expenses of new products; major cost reduction programs for existing products; introductory discounts, sales promotions, and free samples to stimulate first purchases; development of management systems such as planning, control, and compensation; certain engineering studies, and so on.

2.

3.

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SPLITTING THE PROFIT AND LOSS STATEMENT OF A DIVISION IN TERMS OF OPERATIONAL AND STRATEGIC EXPENSES
Conventional Statement Net sales Less: Variable mfg. costs Depreciation Other fixed mfg. costs Gross margin Less: Marketing expenses Admin. expenses Research expenses Division margin Operating margin Total strategic expenses
* Also called Development Expenses

Operational Expenses 100 30 20 5 45 5 5 0

Strategic* Expenses 5 10 5 5

100 30 20 10 40 15 10 5 10

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STRATEGIC FUNDS PROGRAMMING AND OPERATIONAL BUDGETS AN ILLUSTRATION